Tag: energy crisis

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A graph of oil prices, showing the peak during the war, and the start of another peak now

A few weeks ago, back before the Iran war heated back up, The Economist wrote a mia culpa, explaining why they’d gotten it wrong about the war being an economic disaster. Briefly, while the MOU was holding up, I was tempted to write my own.

Like The Economist editors, I had thought back in April that Things are amazingly more bad than markets seem to think, but by the beginning of June, it was looking like maybe the risk of catastrophe had eased.

I didn’t write a mia culpa. To be fair, part of that was just laziness. But part of it was looking at things and thinking I was still right. Maybe between some demand destruction and some dribs and drabs of oil getting through the strait, world markets had found a new equilibrium that wasn’t nearly as bad as I’d expected. But I didn’t think so.

The Economist thought so. They thought they’d gotten it wrong for two reasons:

First, we thought that America and Iran would hold out against a deal to reopen the Strait of Hormuz: America because Mr Trump deludedly thought he held the whip hand, Iran because its regime knew its people could be made to endure more pain. In fact, facing the fury of American motorists, Mr Trump all but folded, preventing a disaster. Since the two parties struck a provisional deal in June, enough oil has been getting out of the Gulf to reassure markets that supply is coming back online, even if the future of the strait remains uncertain.

Our second oversight was, like others, not anticipating the staggering degree to which China would be able to slash its oil imports. Crude imports are 5m barrels a day lower than a year ago, despite the fall in prices. China has cut its demand and shored up supply. Its oil reserves are opaque—many barrels are hidden from satellites underground, and there is a blurred line between official reserves and corporate inventories. But they have been shown to be a powerful buffer.

I pretty much bought their second point. China had produced a truly fantastic amount of demand destruction, and had done it with minimal impact on their own economy, by largely shifting the impact onto people in other countries who had bought their oil distillates, before China prohibited exports. They could probably keep that up indefinitely, removing their demand from the world market.

That first point, though, I found doubtful. I mean, yes, Trump always chickens out, which is why we got the MOU and the briefly partially reopened strait. But I think they were wrong in thinking that Iran would go along with what Trump wanted, or that Trump could settle for what Iran would (obviously) want to do. They tried to paper over the cracks for a few weeks. I mean, I believe Trump settling for whatever Iran did and pretending it was a victory was a thing that could happen. But I’m not surprised it didn’t work out. Too many other people in the U.S. government were simply unwilling to let Trump leave the strait in Iran’s hands. And, although oil prices were coming back down, they were not on a trajectory that would improve the Republican’s chances in the midterms.

So, I think The Economist was right in the first place, and wrong to imagine that Trump and Iran could agree that “preventing a disaster” was something they could do.

The oil price graphic above is already out of date. It shows yesterday’s closing price, and things have gotten worse already today. Brent crude is over $100 as I wrap up this post.

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I’m taking a course on electric power. The instructor, Debbie Insana, lived through the blackouts and brownouts in California produced by the intersection of partial deregulation of the energy markets with corrupt individuals at the (also corrupt) Enron corporation. Prompted by that experience, when she moved to Illinois, she wanted a house that required no net energy inputs to function. That was hard to scale for a single house, so she ended up developing a whole subdivision of energy-efficient houses in Urbana. (The instructor’s title was “The Changing World of Electric Power,” but the people administering it decided pimp it up a little and listed it as Shocking Events in the Changing World of Electric Power. )

It’s of particular interest to me, because I’ve studied much of this same material long ago. Back in 1976, when I was in high school, I attended a National Science Foundation workshop on the energy crisis. The physics hasn’t changed, the politics has probably gotten worse, but the technology has changed, and with it the economics. It’s all very interesting.

Yesterday’s session was on wind power. The installed base of wind power is growing very rapidly (albeit from a low base). A good bit of the installation is happening in Illinois—but for an odd reason. As a source of power, the wind here is rated only fair-to-good. The big win is that we have excellent interconnections to the rest of the country, with major transmission lines that let us deliver power to the east coast and to the Tennessee Valley Authority.

But Illinois is only slipping in here because of an odd intersection of those grid connections, adequate wind, and tax breaks that encourage building now rather than later. The future of wind power going to be off-shore installations. The wind there is stronger and strong closer to the ground. And, it blows strongly during the daytime, when the power is needed, rather than blowing most strongly at night, the way it does on land.

I’m learning about all kinds of new stuff, from technology such as rare-earth magnets making generators smaller and lighter (easier to install on a wind turbine) to lots of obvious-once-you-think-about-it ideas, such as co-siting a wind farm with a gas turbine generating plant: reliable (gas provides electricity when wind isn’t blowing) and cheap (no fuel needed when the wind blows) and flexible (can operate both to serve peak demand).

Wind turbines only function for a certain range of wind speeds—a minimum speed to begin generating power and a maximum speed beyond which wind load can damage the turbine. In excessive winds, they’re designed to feather the blades, brake to a stop, and then lock in place. The teacher shared a video with us of what happens when these mechanisms fail:

I’m looking forward to the next couple of classes in particular, one on solar and one on balancing power in the grid.